Corporate Cash Piles Grow to Record $1.45 Trillion, Moody’s Says

March 18 (Bloomberg) -- U.S. non-financial companies held a
record $1.45 trillion in cash at the end of 2012, up 10 percent
from the previous year, according to Moody’s Investors Service.

Apple Inc., Microsoft Corp., Google Inc., Pfizer Inc. and
Cisco Systems Inc. maintain the five biggest cash balances,
comprising $347 billion, or 24 percent of the total held by
companies graded by Moody’s, analysts led by Richard Lane wrote
in a report today. The richest industries are technology,
healthcare and pharmaceutical, energy and consumer products,
according to Moody’s.

Modest economic growth and tight cost controls enabled
companies to record a 2 percent increase in revenue and
unchanged cash flow from operations in the year ended September
2012, according to the report. High cash balances are positive
credit factors and ensure companies can retire near-term
maturing debt if the capital markets are disrupted and withstand
deterioration in business conditions.

“There are a few key drivers to the record cash levels
including good financial performance, steady growth for the
aggregate of non-financial companies, a modest increase in
revenues and supplementing funding needs through raising debt in
a market last year that was very receptive to debt issuance,”
Lane, senior vice president at Moody’s said in a telephone
interview.

Economic Growth

The U.S. economy grew at a modest to moderate pace across
most of the country, the Federal Reserve said in its Beige Book
business survey. Expansion will accelerate every quarter to 2.8
percent at the beginning of next year, economists surveyed by
Bloomberg predict.

Cash balances of non-financial companies have increased 77
percent from the $820 million in 2006, according to Moody’s.
Investment-grade companies hold $1 trillion, or 81 percent of
total cash, compared with $948 billion in 2011 and $624 billion
in 2006. The four areas in which companies spend cash are
acquisitions, dividends, share repurchases and capital
expenditures.

“Some companies can have a sense that growing cash is
‘burning a hole in their pocket’ and cause them to do things
that are probably not in the best interest of creating
shareholder value, such as making expensive acquisitions and
aggressive share repurchase activity,” Lane said.

Companies need to be able to manage cash so they are
prepared to handle unforeseen macroeconomic or financial
challenges, and “maintain the ability to invest in product
development, research and development and capital expenditures,
which are the foundation for companies to stay competitive over
the long-term,” he said.

Overseas Cash

Overseas cash totals about $840 billion, or 58 percent of
the cash balances, according to Moody’s.

“A significant portion of the cash is maintained
overseas,” Lane said. “Absent any tax reform or a tax holiday,
we believe overseas cash will continue to build and domestic
cash will probably be stable over the next year. It’s quite
possible cash balances will increase and set another record next
year.”

The study included 1,141 companies for 2012. Banks,
insurance companies, mutual funds and other financial entities
are not included.